Thursday, September 8, 2016

Apple, Taxes, and Bad Arguments

I've recently acquired a kind of masochistic hobby--subjecting myself to the economic journalism at the progressive media outlet, The Intercept. I'm not entirely sure why I do it. But whatever the reason, every once in a while I come across some delightfully infuriating gems. Today was one of those days.

Unsubtly titled "Paying Taxes Is A Lot Better Than Phony Corporate Courage, Apple", the piece was prompted by Apple's fall product conference, which The Intercept aptly described as a "quasi-pagan" ritual for Mac lovers. But as the title implies, the real focus of the piece was on criticizing Apple's thorough tax avoidance. Apparently, Apple's CEO used the word "courage" during the day's event, and The Intercept is humbly implying that paying taxes would be a much more courageous act for them than whatever they're doing now.

We have previously touched on the Apple-EU tax feud, and won't rehash the details here. However, the piece is still striking for at least two reasons:

It shows the ease with which progressive-leaning commentators can simultaneously acknowledge the existence of incentives and disregard their implications.

It assumes, without evidence, that increased tax revenues mean better government services, specifically in the realm of education

On the first point, the relevant section from The Intercept reads as follows (emphasis in original):

Now, the writer uses scare quotes to denote the apparent absurdity of Apple's position. But the implication should still be relatively clear. If the tax rates were lower (fairer, in Apple's verbiage), Apple wouldn't bother with intricate and onerous tax planning strategies to avoid them. In other words, if the incentive to avoid taxes was lower, companies and people would be less likely to avoid taxes.

This idea should be obvious at a moment's contemplation. But in The Intercept's telling, this fact is not even worth considering. Instead, we're stuck in a world rich in platitudes and poor in reasoning. The reader is left to conclude Apple is just a greedy corporation, but if they were courageous, they'd pay taxes to help the children. Who needs cause and effect when you have bulletproof logic like that?

Second, The Intercept makes much ado about Apple's marketing emphasis on education. Apple's apparent contribution to this worthy cause is an improvement to their collaborative office software, iWork. Of course, one wonders how helpful it will be given that Google Docs has existed for years and happens to be free.

The Intercept happens to share my skepticism about Apple's iWork plan, but they offer a questionable remedy:

It seems unlikely this will make a substantial difference in the quality of education for children around the world — particularly in countries where public schools are underfunded because companies like Apple deliberately avoid paying taxes.

Again, the takeaway is clear. If Apple and others like them would pay more taxes, public education wouldn't be as bad as it is. This seems reasonable on the surface--the idea that if more money were spent on public schools, the quality would go up. In practice, however, the relationship is not so clear. Indeed, many studies have shown that, at least in developed countries like the US or the EU countries which have been allegedly cheated of tax revenues by Apple, the effect of increasing spending on public education on educational outcomes is negligible. The nature of statistics being what it is, I have no doubt you could find studies suggesting the opposite. But the point here is that the question is very much in dispute.

This odd phenomenon stems from the very unique way we assess problems in governmental institutions relative to the way we assess problems in private institutions. If you went to a store and had a poor experience, what would you think of that business? Depending on the details, you might think they were lazy or incompetent or rude, or some combination thereof. Most likely, your first instinct would not be this:

You know, they probably just don't have enough money. I'm going to keep going back to that store and insist on giving them extra money to help them get on track.

Of course, you wouldn't think that way because it's silly. And yet, that is the default response most of us have when it comes to failures of government. We don't assume that the managers of the government institutions are incompetent and lazy. Instead, we implicitly assume they are blameless in the whole affair and they just need more funding. In some cases, that might be true. But it is clearly unreasonable to assume so by default.

Unfortunately, The Intercept doesn't heed this warning. Instead, the reader is treated to an improbable understanding as a way to criticize Apple.Assumption 1: Public schools perform badly because they lack funding.Assumption 2: Public education lacks funding because companies like Apple dodge taxes.Therefore: Apple could help solve the public education problem if only they paid more taxes.

Both of the supporting assumptions are extremely dubious, but they sound true until you dig deeper. In this way, it's a microcosm for many economic notions advanced under the banner of progressivism--superficially plausible but unable to withstand basic scrutiny.

Summing Up

Obviously, there are many things that are more newsworthy for our purposes than the dimensions Apple's latest iPhone. However, The Intercept's take is fascinating because it shows how many dubious economic assumptions can be subtly baked into an argument without readers, and perhaps without even the author himself, realizing it.

*Also, for what it's worth, I'll have you know I'm not an Apple fanatic by any means. Quite the opposite really. In my adult life, I've bought exactly one Apple device, and in that case, I did so begrudgingly, and as a gift. I don't have any special reason for opposing Apple; their products (and prices) just don't do it for me. On the topic of courage, however, I will say my opinion of Apple rose considerably when they stood up to the FBI last winter on encryption. Paying taxes probably doesn't require much courage; standing up for civil liberties to the most powerful government in the world, on the other hand, most certainly does.